IT EconomicsR E P O R T

ISSUE 01:

How Do Leading CIOs Measure Their Spend?

IT is one of the largest indirect costs in nearly any business. Because those costs are not directly attributable to the business’ external product offerings, it’s hard to know whether IT is receiving appropriate value from its investment. So how do IT leaders know they’re spending wisely?

At Apptio, we’re pioneering new ways of helping IT leaders answer this question with fact-based analysis of their actual IT costs. This is the first in a series of quarterly reports where we explore the aggregate spend patterns of our customers and uncover new insights to inform the decisions of technology business leaders.

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How Do Leading CIOs Measure Their Spend? Every month, our customers use Apptio Cost Transparency to automate IT cost analytics. Together, we’re accumulating a wealth

of IT spend knowledge that’s grounded in truth because it’s based on the actual cost data that CIOs use to run their business.

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The New Era in IT Spend Metrics IT leaders and technology suppliers traditionally measure IT efficiency and make product strategy decisions using IT spend

metrics sourced from consultants and benchmark firms. With this report, Apptio introduces a new data-driven approach that

aggregates actual IT costs from across our customers, yielding a fresh, accurate perspective on industry trends.

� Actual costs from general ledger

� Automated analytics

� Calculated monthly

� Standardized & repeatable

� Enables actionable decisions

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Aligning to a Standard Cost Model In order to analyze our customers’ aggregate spend data for patterns, costs must be calculated consistently. Apptio customers

benefit from a pre-defined cost model and taxonomy that provides standard terms and categories for common IT functions. With

costs routed through this taxonomy, organizations know they’re following best practices and can compare their costs to their peers.

BUSINESS VIEW

IT VIEWFIN

ANCE VIEW

Cost Pools & Sub-PoolsDescribe the type of asset or service purchased using terms and groupings relevant to both IT and Finance.

Internal Labor

External Labor Hardware Software Outside

ServicesFacilities & Power Telecom Other

IT Towers & Sub-TowersDescribe the technology functions supported by IT spend in terms and groupings relevant to the owners and consumers of those functions.

Data Center Output DeliveryComputer

End User

Storage

Application

Network

IT ManagementCommunication Security & Compliance

Applications & ServicesDescribe the products or output delivered by IT and consumed by business units.

Individual Apps byBusiness Capability

Line of Business

Management & Support

End User Services

Client Computing Connectivity Communication

& Collaboration

Technology Services

Applications & Integration

IT Professional Services Hosting

Business UnitsDescribe the consumers of the technology supported by IT spend.

Business Unit 1 Business Unit 2 Business Unit 3 Business Unit 4 Business Unit 5

Learn more about the Apptio TBM Unified Model™ (ATUM™) at Apptio.com/ATUM

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Establishing a Baseline By analyzing actual spend data from a sampling of our customers, we calculated the average percentage of IT spend directed

through each Cost Pool and IT Resource Tower. Note that these are not based on estimates or survey data, but on actual costs,

calculated monthly for these customers by Apptio.

Cost Pool Resource TowerWhen viewing costs through the lens of standard cost pools, it’s no

surprise that nearly 50% of typical IT spend goes toward people-related costs. Second to that is spending on technology, complemented by

services from outside providers.

When costs are routed to IT resource towers, we see that IT’s business-facing productivity offerings appropriately receive the lion’s share of IT spend. The underlying infrastructure & operations costs round out the

major spending areas.

Average % of IT Spend by Resource TowerAverage % of IT Spend by Cost Pool

“We looked at our CRM system and said, ‘this costs a whole lot to support.’” Insourced

support to reduce cost by 50% annually.

Identified $1M in annual potential savings through anomalies in 3rd party managed Telco billing (FTEs

with multiple phones, wrong plans, etc.)

Business units agreed to virtualize after seeing high TCO of underused servers, resulting in 10%

reduction in physical servers

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1 2 3

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Real-World Outcomes

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Profiling the Outliers Every organization is different, and IT leaders tailor their IT supply chain to the unique needs of their business. In our analysis,

we identified 3 groups of companies that deviate from the typical pattern and reflect alternate approaches to sourcing their IT

supply chain.

Does one of these “archetypes” align with your strategy?If you can’t answer this question, then you need a better approach to IT cost analytics.

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Technology-centric In this category, we found two “sub-archetypes” of companies that favor spending on either hardware or software.

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Vendor-centric People-centric

These companies tend to spend more on outside services, such as consultants, managed service providers, and cloud service providers, instead of on labor or technology.

These companies favor spending more on internal labor, and less on contractors and software.

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Modern IT leaders manage their IT business with detailed financial views for supply, demand and consumption.

Standardization enables a new approach to IT industry spend

analytics based on actual costs.

IT leaders can use standard IT cost analytics to frequently compare their actual

costs to peers and industry averages.

IT leaders should seek out IT cost analytics solutions that provide granular

analytics of the entire IT supply chain.

IT leaders should adopt a standardized, automated, best practice approach to IT

cost analytics.

IT leaders should incorporate actual costs into their benchmarking and peer

comparison efforts.

Key Takeaways

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Leading CIOs Use Apptio to Manage the Business of IT Every IT leader should manage their technology business using the IT cost analytics outlined in this report, but most struggle

to do so, because they’re trapped in a bygone era of spreadsheet-based manual reporting. If this is you, take heart! Hundreds

of companies use Apptio to automate these analytics every month.

With Apptio, IT Leaders:

Contact us to join the movement at Apptio.com/Get-Started

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Topics for Future Reports This is just a taste of what’s possible by analyzing the rich repository of IT spend data that Apptio customers calculate on

a monthly basis. We look forward to providing visibility into new facets of IT spend patterns. In future quarters, we plan to

explore new spending insights such as:

¢ How are leading organizations optimizing run costs in order to fund innovation?

¢ How do organizations differ on vendor spend? Which vendors are rising & falling?

¢ How do cost pool allocations vary by archetype, revenue size or other factors?

¢ How effective is each archetype in terms of IT efficiency, revenue growth and other factors?

¢ How do patterns shift over time? Do they exhibit seasonality or react to world events?

Tell us what you’d like to see at info@apptio.com

Understand Costs & KPIs to Drive Value with Your Technology Business

Learn more at Apptio.com/Applications/Cost-Transparency